→ March 17, 2008
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Some economics links.

JP Morgan buys Bear Stearns for $2/share. This is fantastic news. One, JP Morgan picked up Bear’s financial obligations, so they believe they can be met, and we don’t get a default that really could trigger a broader financial panic. Two, there’s no government bailout, at least not in this case. Bear fucked up, and they’re paying for it. This is is how financial markets are supposed to work: If you take on too much risk, or evaluate risk incorrectly, you may get burned, and Bear did.

The Buck Stops Where?: If you want to be a pessimist, the way that the Fed is cheapening the dollar is the best argument that our immediate economic future is dim. We’ve seen scattered reports in the last two weeks that the recession is already abating and that economic growth should resume in the next quarter, so why is the Fed still pushing interest rates down? This would be a good time for President Bush to step in and show the sort of economic leadership he showed earlier in his tenure when he pushed for lower marginal tax rates, elimination of the dividend tax (albeit temporarily), and freer trade. The editorial argues that the Bush administration has tacitly approved of Bernanke’s rate cuts, and if that’s true, it’s a huge mistake. A weak dollar will drive investment funds out of the country at a time when we need more coming in to help ease the credit crunch. This is one example where the equity markets have it wrong. The Fed needs to start bumping rates back up, and sooner rather than later.

Filed Under: Economics Tagged With: , ,
→ March 4, 2008
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Peak Oil.

With oil prices seeming to settle in around $100 a barrel – an alarming number, but not all that surprising when you consider the dollar’s weakness – perhaps it’s time for some contrarian thinking on the arrival of the so-called “Peak Oil” state.

“The World Has Plenty of Oil.” Mr. Saleri’s conclusion:

Sufficient liquid crude supplies do exist to sustain production rates at or near 100 million barrels per day almost to the end of this century.

His strongest point, beyond the straight recitation of statistics on what we know is in the ground and how much we actually consume, is that high oil prices will tend to create incentives for alternatives, both alternative fuel/energy sources, but also alternative extraction techniques. Oil that was not profitable to extract at $50 a barrel may be quite profitable at $100 barrel, and if oil prices remain high, previously untapped sources of oil will come on line. (A 2005 study by the RAND corporation said that a “surface retorting complex” for extracting oil from shale “is unlikely to be profitable unless real crude oil
prices are at least $70 to $95 per barrel (2005 dollars).”)

All in all it’s a rather different message than what you might read in your daily fishwrap or what you’ll hear from any environmental group. Oil will run out eventually, but it’s not likely to happen in our lifetimes.

Filed Under: Economics Tagged With:
→ January 23, 2008
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Sugar addiction.

So the American sugar cartel is at it again, trying to get the government to prop up their industry, which should long since have either disappeared or shrunk into niche status. For those of you who don’t know, Americans pay three times the world market price for sugar because the government restricts sugar imports – true corporate welfare. NAFTA was supposed to put an end to this bullshit, but the sugar lobby is now trying to get Congress to do an end-run around the free trade agreement by forcing the government to buy Mexican sugar imports to keep them off of U.S. shelves.

That pisses me off to begin with, but here’s the thing that should bother everyone: This asinine, smoothawleyrific policy is exacerbating the rising rates of heart disease in the United States. Mass-market food manufacturers, notably the soft drink companies, use high-fructose corn syrup as a sweetener – even though anyone with a functioning tongue can tell you it doesn’t taste as good as sugar does – because it’s significantly cheaper than real sugar. This makes the corn lobby happy, but the problem for consumers is that fructose has a major downside: It reduces the levels of two enzymes critical to heart health,, leading to enlarged hearts and increasing the likelihood of heart disease. A diet high in fruits isn’t likely to cause this problem, but a diet high in high-fructose corn syrup – you know, corn syrup that is HIGH IN FRUCTOSE – is. What’s the better course of action: Using government money to keep Mexican sugar off the market, gouging American consumers while raising heart disease rates; or letting the market dictate prices and getting sugar back into soft drinks?

Filed Under: Economics Tagged With: , , ,